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Architecture Firm Billings Increase at Modest Pace in June

Though trending upwards, the share of firms working on international projects remains small

By Jennifer Riskus

Business conditions at architecture firms improved modestly in June, as indicated by the AIA’s Architecture Billings Index (ABI) score of 51.6. (Any score over 50 indicates growth). The pace of billings growth at firms slowed slightly from May, but continued to rebound from the one-month decline in April. Inquiries into new work remained strong, and firms reported an increase in the value of new construction contracts for the sixth consecutive month. In addition, average architecture firm backlogs in June remained unchanged from March, at five months. Backlogs have been inching up incrementally since the AIA began tracking that information on a quarterly basis in late 2010, but remain fairly modest.

Business conditions continued to improve at firms across much of the country, with firms located in the Midwest remaining the exception. Firm billings in that region have been declining since the end of the first quarter of 2013. Billings in June were strongest at firms located in the Northeast and the South. Conditions also continued to improve at firms of all specializations, although that growth remained fairly minimal at firms with an institutional specialization.

More mixed signals

As has been typical in the recent past, the overall economy showed mixed signals for improvement in June. While employment payrolls added 195,000 positions, architectural services employment was essentially flat. However, the construction unemployment rate has continued to trend down and is currently the lowest it has been in five years. Housing starts and building permits authorizing new housing units both declined in June from May levels but remain substantially above the rates seen a year ago. Building permits for single-family houses showed a modest increase from May to June.

The latest edition of the Federal Reserve’s Beige Book also portrays an economy that is improving at a modest pace. Consumer spending is up, but hiring remains relatively flat in many regions, with employers showing some hesitation to commit to hiring full-time employees. Residential construction has increased moderately in the last six weeks, with the New York, Philadelphia, Chicago, Minneapolis, Dallas, and San Francisco districts reporting strong growth in multifamily residential construction in particular. Commercial construction is also increasing in the heartland, most notably in the Cleveland, Chicago, St. Louis, Minneapolis, and Dallas districts.

Fifteen percent of firms work abroad

Although international work conducted by U.S. architecture firms has increased in recent years, it remains a relatively small share of the market overall, as just 15 percent of firms reported having had any firm billings from international design/construction projects in the last year. (This includes projects outside the U.S. for foreign clients, U.S. clients, and/or the U.S. government). Firms with a commercial/industrial specialization were most likely to have had international billings in the last year (21 percent) followed by 18 percent of firms with an institutional specialization. Only 6 percent of firms with a residential specialization have reported international billings. In addition, 19 percent of firms located in the Midwest had international billings, compared to just 12 percent of firms located in the West.

Firms that did have billings from international design/construction projects in the last year reported that those projects accounted for just 8.9 percent of their firm’s gross billings on average. That share of billings is lower at smaller firms and higher at larger firms. This international work accounts for just 5.4 percent of firm billings at firms with annual revenue of less than $250,000, compared to 10.7 percent of billings at firms with annual revenue of $1 to $5 million. Of firms that do take on international projects, ones located in the coastal regions of the country (the Northeast and West) also reported a higher proportion of firm billings from international projects.

This month, Work-on-the-Boards participants are saying:

• K–12 projects are coming alive, but are smaller than pre-recession [projects], and mostly renovations. Due to a lack of state funding, higher education projects are stalled, cancelled, or deferred, with little to no activity projected until late 2014.

—40-person firm in the Northeast, institutional specialization

• In the Denver area, almost all of our clients want to build, but we’re having difficulty finding structural engineers and contractors available to join the team.

—One-person firm in the West, residential specialization

• Locally, business continues to pick up, but we are still seeing increased time from project inception, to release, to [beginning] design.

—39-person firm in the South, institutional specialization

• High-performance structures are gaining acceptance as owners become cognizant of benefits to the environment and to their business bottom line.
—One-person firm in the Midwest, commercial/industrial specialization

The ABI Work-on-the-Boards panel is open to any AIA member who is principal/partner of their firm. Apply to join the ABI panel by completing a brief background information form on your firm here.

About the AIA Architecture Billings Index

The Architecture Billings Index (ABI), produced by the AIA Economics and Market Research Group, is a leading economic indicator that provides an approximately nine- to 12-month glimpse into the future of nonresidential construction spending activity. The diffusion indexes contained in the full report are derived from a monthly “Work-on-the-Boards” survey that is sent to a panel of AIA member–owned firms. Participants are asked whether their billings increased, decreased, or stayed the same in the month that just ended, as compared to the prior month, and the results are then compiled into the ABI. These monthly results are also seasonally adjusted to allow for comparison to prior months. The monthly ABI index scores are centered near 50, with scores above 50 indicating an aggregate increase in billings, and scores below 50 indicating a decline. The regional and sector data are formulated using a three-month moving average. More information on the ABI and the analysis of its relationship to construction activity can be found in the white paper “Architecture Billings as a Leading Indicator of Construction: Analysis of the Relationship between a Billings Index and Construction Spending” on AIA.org.